For Americans, debt practically has become a natural part of life. We have loans for school, mortgages for houses and numerous credit cards. If you hit a rough patch in life and can't pay back your loans on time, this lowers the score on your credit report. Even if the situation seems dire, you can be on the road to repairing your credit in a few months.
Identification
The history of credit reporting goes back hundreds of years, but the notion of a credit score is a fairly recent invention. Fair Isaac Corporation, which was founded by an engineer and a mathematician to show that the intelligent use of data could improve business decisions, developed the first formula to calculate the FICO credit score.
A good credit score is essential for achieving the highest standard of living. High credit ratings are needed for lower interest rates on credit cards and mortgages, and some employers factor credit ratings into hiring decisions.
Time Frame
There is no set timetable to repair poor credit. How long something negative stays on a credit report depends on the type of debt and how much debt you have. Data that hurts your credit score usually can be reported for seven years or more in extreme cases.
However, you can start to raise a credit score within six to 12 months, because the payment history is the most important factor when calculating credit ratings. Your payment history counts for 35 percent of your score.
Other Factors
How much credit you owe counts almost as much as your payment history, 30 percent of your credit score, so paying off debt is one of the quickest ways to repair credit. Other factors that influence your score are how long you have used credit (15 percent of your score--the longer, the better), the type of credit used recently (10 percent) and how much new credit you have applied for recently (10 percent). For example, lots of credit card debt taken at one time lowers your score because it looks like you have financial problems.
Defaults and Bankruptcy
Some financial situations are of such concern to credit companies that they stay on your credit report for a long time and usually prevent new lines of credit. Bankruptcy, owing more than you can afford to pay, can stay on your record as long as 10 years. Defaulting on a government-backed student loan can stay on a report for seven years after the account is considered in bad standing.
Warning
Some companies and individuals claim that they can instantly repair credit histories or give you a brand new history. These are scams. These companies either take your money and do nothing for you or tell you how to commit identity fraud. Other scams include removing debt obligations through bankruptcy, which should be done only in extremely dire situations.
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